Writing your trading plan?

  1. Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?
  2. What are my trading goals? Again, not a trivial question. Are you trying to gain a few dollars for extra spending money? Trying to fund your retirement? Trade for a living? Or are you trying to amass a fortune and retire early to a life of luxury? How you answer this question will identify the level of risk that you will have to endure.
  3. What is the size of my trading account? An obvious question.
  4. What is my skill level? Be honest.
  5. What is my tolerance for risk? And does that tolerance bear any relation to my skill level? It’s no good having a high tolerance for risk if your skills are inadequate.
  6. What must I do to improve my skill level?
  7. If my skill level is low, what trading size can I use to ensure that a single bad decision will not wipe me out? Preserving capital and staying in the game long enough to LTP good trading practices is crucial.
  8. What is my preferred trading instrument and have I familiarized myself with the behavior, range and velocity of that instrument? Some trades, like bonds and the ETF’s can move at a glacial pace.
  9. What indicators will I use to identify my entries and exits? Here, “the more, the merrier” may not be the wisest choice. Remember, there can be paralysis by (over)analysis.
  10. Where will I place my initial stop; and how will I manage them? You may have a trailing stop strategy, or you may plan to just exit when your indicators say, “Get out!”

  11. What is a “good average move” of your trading instrument? Knowing that in advance may help you to avoid the MORE! Syndrome.
  12. What will I do if I enter a trade, and it stalls out? Again, this will be dependent on the volatility of your trading instrument.
  13. What am I prepared to lose and what will I do if I lose? Many traders have a specified amount or percentage of their trading capital that they can lose before they have to shut down for the day, week or month. The feeling is that they are out-of-tune with the markets on that day.
  14. What percentage of my trading capital am I prepared to risk. This is closely related to question 13. Will you risk your maximum tolerable loss on one trade? (Not a wise choice, by the way.). Or will I trade small enough so that I can tolerate many losses before I hit my limit?
  15. What will I do to monitor my performance, my mental state, and my energy level?

  16. What records will I keep to be able to quantify my performance?

  17. What general health measures will I adopt in order to keep my performance at its peak?

  18. How will I monitor my emotional control or physiologic level of arousal?

  19. What will I have determined to do if they are out-of-control? How will I regain that control? (Remember that the Acute Stress Response typically just lasts for a few minutes – unless you do something to perpetuate it.)

  20. What level of performance or consistency will I select as being worthy of a reward? And, of course, what will I choose as my reward for a job well done?